Topic 5 Key Terms Flashcards
Administration order
A repayment plan arranged by county courts in England, Wales and Northern Ireland for people with less than £5,000 in unsecured debt and at least one county court judgment (CCJ) against them. They apply to the court to have an administration order issued, then pay what the court decides they can afford directly to the court each month, and the court makes repayments to their creditors.
Arrears
An unpaid overdue debt.
Bankruptcy
A situation in which a person cannot pay their debts and is the subject of a court order that shares out their assets between their creditors.
Consolidation loan
A loan used to pay off a number of different debts, meaning that there is then only one payment to make each month, to the loan company.
County court judgment (CCJ)
In England and Wales, a judgment issued by a county court to a person who does not respond to court action from a person or organisation to which they owe money. The CCJ affirms that the money is owed.
Credit card
A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is taken from the holder’s own account, transactions are paid by the card provider. The cardholder repays the amount owed to the provider either in one payment or in instalments. The provider charges interest on cash withdrawals from the time the withdrawal is made and on purchases after a certain period.
Credit crunch
A reduction in the availability of loans or a tightening of the conditions needed to obtain one. The global financial crisis of 2007–08 began when financial institutions became reluctant to lend funds to one another.
Creditor
A person or an organisation to which a debtor owes money.
Credit reference agency
An independent organisation that maintains records of people’s credit history – that is, what they have applied to borrow, what they have actually borrowed and whether they have paid it back. The data is provided by lenders.
Culture
A society’s set of norms about behaviour and attitudes across social groups.
It indicates what society considers to be acceptable and unacceptable.
Debtor
A person who owes money.
Debt management plan (DMP)
A detailed plan drawn up by a debt management company (DMC) and sent to an individual’s creditors. It sets out an affordable monthly payment shared between the creditors.
Debt relief order (DRO)
An order a person in specific circumstances can apply for if they cannot afford to pay off their debts. It generally lasts one year, during which time none of the people owed money can take action, and after which the listed debts are cleared. Granted by the Insolvency Service, a DRO works out cheaper than going bankrupt.
Default
To fail to repay borrowing when the repayment is due.
Deficit
Where expenditure exceeds income.
Discharged debt
When the debt has been repaid in full or a period of time has elapsed which means the debt will no longer have to be repaid.
Equity
This has two meanings: a) when talking about investments, equity is another name for the shares of a company quoted on the Stock Exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage.
Financial footprint
The record or ‘footprint’ that every financial transaction, and thus every person, leaves behind them. This includes outstanding debts; missed payments; loan applications; increases in borrowing; and previous borrowing.
Hardcore debt
Debt that a person is not in a position to repay because their regular outgoings take up all their available income.
Hire purchase
A type of secured consumer credit, to finance items such as cars and furniture, which involves the borrower repaying over a number of years.
Individual voluntary arrangement (IVA)
A formal alternative to bankruptcy comprising a contractual arrangement with that owed money.
Informal payment plan
An approach to debt repayment that involves the debtor contacting their creditors and managing the debt repayment process by themselves.
Licensed insolvency practitioner
A company or person that sets up and supervises IVAs.
Loan forbearance
When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead of allowing the customer to stop paying or make reduced payments for a set period.
Official receiver
An officer of the bankruptcy court who takes over the finances of a bankrupt.
Overdraft (authorised and unauthorised)
A facility that allows an account holder to withdraw more money than they actually have in their account. An authorised overdraft is agreed with the bank in advance within certain limits. Exceeding those limits or going overdrawn without permission is an unauthorised overdraft, and attempted withdrawals may not be honoured.
Priority bills
Bills that an individual has a legal obligation to pay and where the consequences of not paying may be a fine or prison term.
Recession
A period of at least six months in which the amount of goods and services the country is producing is shrinking.
Repossession
A legal process whereby a financial institution (eg a mortgage lender) takes ownership of an asset, often a house, because loan repayments relating to that asset have not been met. Repossession is the last resort in the process of recovering money owed.
Secured loan
A loan secured against an asset, such as a house. If the borrower does not keep up repayments on the loan, the lender can seize the asset and sell it to recover the money owed.
Sharia law
Rules that devout Muslims follow which, in relation to personal finance, prohibit the paying and receiving of interest; this virtually excludes a strict Muslim from doing any borrowing.
Small print
The legal terms and conditions attaching to a product, often literally presented in very small type on a document.
Sustainable personal finance
Achieving and maintaining a balance between personal income and expenditure to satisfy needs, wants and aspirations within the budget.
Unsecured loan
A loan that is not secured against an asset, eg personal loans, credit cards and overdrafts.
